A call for public comment on further amendments to the Chinese Trademark Law

A robust IP system is strategic to develop an innovative society and a core driver in determining a country’s ability to compete on the global stage. Strong and dependable trade mark laws protect consumers and create valuable assets for brand owners.

The current China Trade Mark Law was revised and came into effect on 1 May, 2014.  This year, the China Trademark Office (CTMO) is calling for public comment on the Trade Mark Law with the aim to introduce new revisions sometime between 2020 and 2022.

The Chinese trade mark authorities face three main challenges: balancing the need for expedited examination in the face of a massive number of applications, addressing legitimate brand owners’ need for stronger legal provisions to protect against an increasing number of bad faith applications, and addressing the growing demand for registered trade mark rights in an already overcrowded register.  The purpose of any amendment to the law is to balance these needs and to create a healthy environment for trade mark prosecution and enforcement.

Mirroring its significant population and growing economy, China has the largest numbers of trade mark filings and registrations in the world.  In 2017, the China Trademark Office received 5.74 million new applications, an increase of 56%[1].  By the end of 2017, there were nearly 15 million valid trade mark registrations in China.  The CTMO is legally required to complete the examination of new applications within nine months.  By the end of 2018, that period will be shortened to six months and then shortened again to four months in 2020. 

The CTMO is also handling a large number of oppositions, with 72,575 being received in 2017 (an increase of 26.9% over the previous year).  The CTMO supported opponents in 20,184 opposition cases, with registrations being prevented in 28.41% of those cases[2]

In 2017, the CTMO cancelled 28,000 marks for non-use, removed 14,000 marks at the request of registrants, and 16,390 registrations lapsed due to non-renewal.  A total of 33,190 trade mark registrations were removed in 2017[3]

Against this backdrop, we have recommendations for amendments to the China Trade Mark Law:

  1. Whether to remove or maintain substantive examination on relative grounds

Driven by the goal of shortening the examination time-frame and clearing the overwhelming backlog, there are voices within the CTMO calling to remove the CTMO’s relative grounds examination and instead allow applications to go directly to publication for opposition.  We do not believe this approach is appropriate for China given the history of trade mark squatting and the still growing number of bad faith applications.  Amongst the over 5.7 million trademark applications filed in 2017, we observed one individual applicant who filed 5,767 trade mark applications, earning the “honor” of applying for more trade marks than China’s “BAT” (Baidu, Alibaba and Tencent, China’s technology giants).  Turning off the “firewall” that the CTMO’s substantive examination process provides, would lead to a flood of bad faith applications and a huge surge in oppositions and increased burden for rights holders.  This would greatly increase the cost of maintaining and protecting trade marks that are legitimately used in commerce while reducing the obstacles for those who already strangle the system with bad faith applications.  Without significant reform to the opposition process, removing the CTMO’s substantive examination procedure would lead to market confusion, an erosion of the value of brands, and an increasing number of disputes and litigation.

Allowing applications to publish and register without substantive examination will certainly help to shorten the time needed for examination, but it will give more opportunities to copycats to cause chaos, both on the trade mark register and in the marketplace.  In finding the right balance, we cannot trade small gains in speed and “efficiency” at the cost of protecting the integrity of the trade mark register, the value of intellectual property, and Chinese consumers.  This substantial change in procedure requires serious consideration, thorough statistical analysis, and input from the public and industry.

  1. Inclusion of the “principle of honesty” into substantive clauses of the Trademark Law

Under the current law, the legal basis for opposition and invalidation are Article 32 (similar marks on similar goods), Article 13 (well-known trade marks), and Article 31 (prior rights).  Even though Article 7 states that the application and use of the mark should comply with the principle of honesty and credibility, this article is regarded as a precatory general principle rather than a ground of opposition or invalidation.  Where bad faith is involved, if the case does not meet the situations prescribed above, there will be difficulties in winning the case.  This is especially true where the bad faith applicant is not an agent of the true trade mark owner or the true trade mark owner cannot prove the bad faith applicant’s awareness of the mark before the application.  These kinds of “coincidences” happen more frequently than one would ordinarily expect and yet there are few remedies.  Under current practice, apart from Article 44 (1) which applies only to registered marks, it seems no clause can be used for bad faith (other than the above situations) during an opposition procedure.  The lack of sufficient bad faith clauses invites difficulties in the daily work of the CTMO and the Courts.

We have seen a positive development in the introduction of the “principle of honesty” into Article 7 “filing in good faith” in the current Trademark Law.  However, it is a mere illustrative concept with no clause citing the same to apply in use.  In the next amendment, it would be far more effective if the “principle of honesty” could be applied directly, which would require the new law to include “filing in good faith” within the substantive clauses such as Articles 32, 44, 45.  This would restrain bad faith trade marks through every examination procedure, from the examination of new applications, to oppositions, invalidations, and administrative litigation.  

  1. Imposing the obligation to file a defence in opposition and invalidation procedures; “default judgment”

According to the current Trademark Law, the opposing party in the opposition procedure and the registrant in the invalidation procedure is given the opportunity to respond to the opposition/invalidation within a prescribed time limit.  Given that filing a defence is a right rather than obligation, the opposed party and the registrant can choose whether or not to take part in the proceedings.  If they choose to do nothing, it will not affect the examination of the opposition and invalidation.  The current procedures create an imbalance by placing a far higher onus on the brand owner to actively protect their marks.  Brand owners have an obligation to prove their prior rights in and the use of the marks in China when bringing an opposition or invalidation.  However, once a prima facie case is made, the burden of proof does not shift to the opposed party or registrant.  Even though the opposed party or registrant choose not to respond to the actions or explain how they created the mark in question (especially coined Latin letter marks or devices), they have a decent chance to defend the opposition/invalidation if the brand owners are unable to submit the kind of evidence in the right form expected by the CTMO.

Based on Article 4 of the law, a mark should be applied for based on the need to do business.  If a mark is important to its applicant for conducting business, the applicant should have the obligation to respond to the opposition/invalidation in order to obtain or maintain a registration.  For those who willingly forgo the right to respond, they should bear the consequences.   Therefore, if the opposed party or registrant does not file a response within the prescribed time frame, the trade mark authorities should issue a default judgment against them.  This is regardless of whether or not the mark was filed in bad faith.

  1. Trade mark “hoarding”

The value of a mark is generated and accumulated by putting it to actual use as legislated under Article 4 of the law.  If brand owners have no intention to use their marks, they should not clog up the register with unused marks which act as obstacles to parties who genuinely need these marks to trade in the Chinese market. 

Therefore, we suggest adopting the US practice.  When filing an application for a mark, the applicant should submit evidence to prove an “intent to use”.  Once the mark is registered, the registrant should submit evidence of use every three or five years in order to maintain the registration.  If no evidence is submitted, the CTMO should ex officio cancel the registration.  In the meantime, a penalty should be applied if the registrant or its agents forge evidence of use to mislead the trade mark authorities.

Alternatively, we may consider adopting an annuity fee policy.  If the registrant no longer intends to use the mark, it can stop paying the annuity fee and abandon its registration.

The CTMO welcomes comments to the amendments of the law.  The due date for public comment is 31 July 2018.  We will be submitting detailed comments and hope that brand owners will bring their thoughts and suggestions to the trade mark authorities.

 

 

Principles

      Proposed Amendments

Maintaining CTMO‘s substantive examination process

  • Maintain the process of substantive examination by CTMO based on relative grounds.
  • Adopting the examination practice from the UK.

The “principle of good faith”

  • Include Article 7 “filing in good faith” into substantive clauses such as Articles 32, 44, 45 and 57.
  • Include “principle of good faith” into substantive clauses regarding the examination of new applications, oppositions, invalidations and trade mark infringement.  This will enable Article 44.1 to be applied to opposition.
  • Clause 2 of Article 15 to be removed, because the requirement of prior use is too stringent and the scope of application is too narrow.

Obligation to file defence in opposition and invalidation proceedings

  • Add the provision of “default judgment” in an opposition in Article 35.  Compulsory requirement that the applicant/registrant responds to an opposition/invalidation.  Failure to respond will result in a judgment in default and automatic removal/cancellation of the application/registration.

Trade mark “hoarding”

  • Similar to the US practice, it is mandatory for a registrant to submit evidence of use on a regular basis to maintain the registration.  Failure to use will result in the cancellation of a registered mark by the CTMO ex officio. Imposing harsh punishments to registrants/their agents who falsify evidence.

 

[1] 2 3The numbers are cited from Annual Development Report on China’s Trademark Strategy 2017, China Industry & Commerce Press, edition 1 March 2018.